About Me

Wednesday, December 19, 2007

The World Bank (WB) and the Price Waterhouse Coopers (PWC) recently published their joint report, “Paying Taxes 2008: The Global Picture”.

‘Taxes” are defined by the paper as “paid to government, compulsory, used by the authorities as part of public finances, and with no direct return of value to payer” Hence, various fees and charges levied by various government agencies like DTI business permit fee, municipal/city business permit fee, and so on, officially referred here as “non-tax revenues” are actually taxes. Total business taxes is composed of corporate income tax + labor taxes + other taxes.

For Philippine-based companies, the total tax rate they have to pay to various national and local government units, is 52.8 percent of commercial profits. This is the highest among ASEAN member-countries. And not only that the Philippines has the highest tax rates, it also has among the plentiest business taxes in Asia and other countries in the world. See table below.

One may wonder if the Philippines a socialist economy since it has more business taxes than socialist governments of Vietnam and China. Or the welfare states of North America and Europe. Since the Philippines is not a socialist economy, those multiple taxes were possibly meant to “correct” the loopholes of previous tax measures. Fine, but this gives tax administrators and legislators some arbitrary power in deciding to whom those taxes will apply and to whom they will not apply.

If the Philippine government is serious in making the economy more competitive compared to its Asian neighbors and other countries around the world, one very important measure it should do is to drastically cut the number of tax payments it imposes on productive enterprises. Cut into half, even three-fourth, those 47 business taxes. Then fully implement those taxes that are retained.

Private enterprises are doing the social welfare function of expanding domestic production of various goods and services, which fights high inflation, and in creating jobs, which fights high unemployment and poverty. Imposing several dozens of taxes on them is one goof formula to discourage if not kill them, or drive them to cheat their tax payments to preserve their earnings and their existence.